a-can-of-potatoes

[a-can-of-potatoes]

On 1st July 2018

The budget’s still in deficit, with the debt still high and rising, but blow that, let’s have a decade of tax cuts.

The current fiscal policy proposals are not aiming at sustaining economic prosperity for Australia in the long run, and instead proposes tax cuts in a time where social welfare burdens are the greatest, as unemployment remains high at  5.5% and an ageing population

[politicians state] “high cost of living”. With the consumer price index stuck at 2 per cent, that’s an obvious misconception.

This tends to favour shifting power away from unions and workers, reducing their power to bargain for wage increases, which again lowers CPI. This leads to a circular effect, and reduces the capacity for CPI to reach between 2-3%, where CPI is currently at 1.9%.

Currently, with the unemployment above the NAIRU, there are no supply shortages causing upward pressure on wages. Although in the global sphere, growth prospects are rising, leading to rising businesses investments and expectations

The NAIRU, according to Lowe, is lower than initially forecasted, due to structural changes in the workforce.

Due to the process of globalisation, labour forces in advanced economies are less internationally competitive due to the high cost of labour

This decreases the bargaining power of workers in advanced economies, especially in manufacturing sectors

Another factor is the type of capital investment, where firms who invest in software and IP, allowing for higher efficiency in data management

Lowe’s theory is that the lagging firms are trying to keep up by resorting to cost control, making them reluctant increase wages as their profit margins cannot keep up.

A concern of the RBA is that many households have taken on big mortgages under the implicit assumption that real wage growth will lessen the burden over time, thereby increasing their wealth.

[a-can-of-potatoes]

On 4th June 2018

The RBA has once again held the cash rate at 1.5%, despite the changing global and domestic factors. The expected raise in rates are now delayed until late 2019, which continuously gets re-evaluated later.

The RBA has been conducting expansionary monetary policy since August 2016, pushing the cash rate below long-trend averages of 3%.

However, there is concern that interest rates from the major banks will rise due to global factors leading, such as the Fed raising interest rates, pulling funds out of Australia, which will impact the debt levels of Australian households who currently hold variable mortgages.

However, there are economists who see that the RBA’s stance on monetary policy is not loose enough, with Market Economics managing director Stephen Koukoulas holds the view that “The RBA needs to cut [cash rate]”.

“Is 1.5 per cent really that loose? No because unemployment is not falling, inflation is below the [RBA's] target range and has been for three years and wages growth is at record lows — it seems policy is not too easy."

According to Credit Suisse economist Damien Boey, the neutral rate is decreasing, reaching close to 1.5% and 1% due to demand and supply with international banks. Therefore, for RBA to conduct expansionary policy, the cash rate will need to be lowered.

[a-can-of-potatoes]

On 5th July 2018

Housing prices in Sydney and Melbourne has been falling for the 9th consecutive month, after experiencing a rapid housing boom since late 2016 when the RBA cut the cash rate to 1.5%, and increases in population.

This comes as a result of ASIC tightening financial regulations tightening lending standards from the bank, leading to loans being approved, and thus led to the cooling of the housing market.

This increases financial stability in the Australian economy, as the low savings base in Australia increases foreign debt liabilities during a housing boom.

Alex Heath, head of economic analysis at the RBA noted that the RBA was more confident on investment outlook on sectors away from mining. However, rise in housing construction has slowed, and is not expected to contribute to GDP growth significantly over the next quarters.

For many families, housing accounts for over 55% of household wealth, so a decrease in the value of housing will decrease confidence overall in the economy, which tends to stifle investment and consumption.

Demand for housing is expected to remain strong due to high levels of population growth, at 1.6%, most of which tends to flow to Sydney and Melbourne, which pushes demand for housing in these 2 cities.

According to CoreLogic, housing prices in Sydney were down 4.5 per cent in June from a year ago, which is the sharpest decline since the GFC, with Melbourne slowing to 1% in contrast to double digit growth in the last year.

Deloitte financial services partner James Hickey said uncertainty around possible new rules and legislative change as a result of the ongoing banking royal commission could dampen the market, but he characterised the slowdown as a healthy pullback from unsustainable levels of recent years.

"The strong lending growth of the 2013 to 2016 period was never going to be sustainable in the long term. The market recognises the need to take stock and find a new sustainable base for the long term."

[a-can-of-potatoes]

On 26th Feb 2018

Australia’s services exports continue to increase, reflected in the net export of tourism services increase from year-end 2017.

There were 8.8 million short-term (stays less than a year) at the end of the year in Dec 2017, increasing 6.5 per cent relative to 2016. Ten out of our top 15 tourism markets remain in the Asia-Pacific region, and accounted for almost 60 per cent of total overseas tourist in Australia in 2017.

This reflects Australia’s increasing economic integration with the local region to support continued economic growth. The local area is both easier to commence trade with due to less time lags in transport of goods and services and due to the nature of economies emerging/ developing, and industrialising, increasing their demand for Australia’s main exports.

China remained one of Australia’s strongest trading partners with tourists rising by 12 per cent to 1.355 million in the year to December 2017, making the country our second largest source of visitors after New Zealand (1.356 million). 10 years ago, total Chinese visitors totalled 354,700, with 2007 marking the year visitors began to increase by approx. 14% per annum.

This is reflective of the post GFC strength of the Chinese economy, as the emergence of a Chinese middle class allows for greater purchase of imports, including Australian tourism.

India has also been an increasing market for Australian services, growing by an average 12 per cent per annum between 2013 and 2016, and continued to surge in 2017, up 15 per cent to exceed 300,000 visitors.

As the country with the second largest population, India’s industrialisation can bring new export opportunities for Australia as China transitions away from an industrialising economy.

Australia’s own transition to becoming predominately serviced based, is representative of many advanced economies presently. Exports of services are both more future-proof and more ecologically sustainable, and thus the Australian economy will need to rely on these exports until the third mining boom.

[a-can-of-potatoes]

On 9th May 2018

The Budget outcome is a deficit of $14 billion AUD. The government has continued its contractionary stance in trying to restore the budget to surplus, in an effort to halt Australia’s growing debt levels.

This is to achieve sustainable levels of government debt, as since the GFC, the government budget outcomes have always been in a deficit in an effort to keep the economy growing through expansionary fiscal policy, increasing Australia’s debt liabilities.

This reduces the level of funds the private sector will have available to them as the government borrows from the public, which can stifle investment, reducing injections into the economy

Income tax reductions:

Tax  rebate for low-middle income earners of $530 a year

Increasing the size of middle tax brackets to fight the effects of ‘bracket creep’

Flattening the tax system: By 2024, everyone earning between $41,000 and $200,000 will pay 32.5 per cent tax. 

This is intended to boost the economy by reducing the tax component of the circular flow, which should help businesses gain earn more as the tax savings will be used to buy goods and services.

In a time with low wages growth, bracket creep is not a concern as there will not be as much people ‘bracket creeping’. Many increases in the wages of those moving to a higher tax bracket has wages growth in excess of CPI, and thus the tax reductions for ‘middle-top income’ earners will increase the inequality in disposable income in the Australian Economy.

Super consolidation:

Super payments sitting on multiple accounts can now be consolidated by the ATO and the funds sent to your preferred super accounts

Super companies will not be able to charge exit fees if you decide to switch companies

If you are young or not earning a lot, companies now cannot force you to take life insurance

Aged care

About 14,000 more people will get home care packages at a cost of $1.6 billion over four years. 

A new commissioner responsible for safety and quality care will get a $253 million kickstart over four years. Mental health services in aged care homes will also be bolstered.

Both the above budget initiatives are in response to Australia’s changing demographic as Australian heads towards an ageing population. Super consolidations are to relieve stress on the welfare system so that less burden is placed on the pension system against a smaller tax base.

Infrastructure 

There's $24.5 billion for new projects to ease congestion. Victoria is receiving the largest amount, including a $5 billion for a rail line to Melbourne airport. 

Developing infrastructure helps expand Australia’s PPP, with roads helping to relieve traffic congestion, helping to transport goods around faster and increases workforce mobility, 

The budget is projected return to surplus a year earlier than planned in 2019-20. But it will only be $2.2 billion accounting for 0.1% of  GDP

However, budget revenue is expected to come from cyclical factors, such as riding commodities prices, and are vulnerable to shocks to the economic cycle, such as the impending trade war.

[a-can-of-potatoes]

On 3rd July 2018

Official Chinese data indicates that BRI spending is down, amounting to contracts worth $US36.2 billion signed during the first five months of 2018 – 6% less than during the same period in 2017.

Such activity was also down during the first five months of 2017 compared to the same period of 2016, indicating the Chinese government may be concerned over the size of their commitments.

There is also concern from foreign governments over the use of the foreign investments for political gains, such as leasing of strategically important ports due to an inability to pay off Chinese loans

Many of these countries have higher risks with these Chinese loans, as these loans are often denominated in foreign currency. Therefore, any movement in the exchange rate will be outside of their control, and can worsen the borrow’s debt position if the exchange rate was to deteriorate. Given a number of borrowers are developing nations, this increase in debt servicing will negatively impact their growth prospects.

This can lead to defaulting of these loans, which may occur during a global downswing. This will put China in a negative position as the value of these loans are enormous, now close to 1 trillion USD,  which will bring a significant shock and loss to the Chinese system if funds cannot be re-obtained.

China itself has been seen in tightening its financial regulations to reduce the risk in financial markets this year, as company debt is remains in high levels.

The Chinese debt bubble is vulnerable to shocks as currently many stocks are tied in as debt collateral. The current trade war with the US can reduce consumer confidence, which will see consumers change to less risky investments, which can result in drops in the exchange market. 

[a-can-of-potatoes]

On 10th Jan 2018,

The World Bank forecasts 2018 growth to be at 3%, following above-expectations performances in 2017

"For the first time since the global financial crisis, all major regions of the world are experiencing an uptick in economic growth," 

The bank cited this improvement in conditions due to increased capital investment and stronger global demand, with developing and emerging economies carrying world growth, with these economies on average growing at 4.5%.

For economies such as Australia, an improvement in commodity prices has lead to stronger growth prospects.

However, in many economies, mainly advanced, the structural changes occurring to the labour force, resulting in ‘declining potential’.

Many economies will experience an increase in retirees as the baby boomer generation heads into retirement

This will decrease labour supply and the size of the labour force, as well as decreasing prodcutivty

This will result in a smaller income tax base as well as a need fro greater welfare payments to retirees.

"More than 84 per cent of global GDP is currently produced by countries whose working age population shares are expected to shrink by 2030."

The world bank recommends investment into human capital, such as higher quality education, and other forms of infrastructure to made the labour force more productive to offset the decrease in size.

Furthermore, gender equality in the workforce can also add to the size of the labour force, which can increase the productivity of the labour. 

Global female labour force participation, at 58 per cent on average in 2013-17, remains three-quarters below that of men... and even less in [emerging market and developing economies]."

By integrating women into the workforce, it increases the productive capacity of an economy. Therefore, by investing in present infrastructure and resources, an economy can expand it’s productive capacities in the future. 

[a-can-of-potatoes]

On 20th April 2018

The IMF has upwardly revised global growth predictions from 3.8 % to 2.9% , due to "favourable market sentiment, accommodative financial conditions, and the domestic and international repercussions of expansionary fiscal policy in the United States"

The main contributers to upward revisions on the forecasts are from US and the Europe region. The US are expected to grow 2.9% in 2018 and 2.7% in 2019, upwardly revised by 0.6% and 0.8% respectively, and Europe at 2.4% in 2018 and 2.0% in 2019, up by 0.5 and 0.3  respectively.

This reflects the impact of expansionary fiscal policy in stimulating the economy, which is more successful in expansionary measures.

China is expected to grow at 6.6% in 2018 and India at 7.4%, with the ASEAN at 5.3%.  This is reflective of the high growth rates of emerging economies

This upward trend is expected to reach it;s highest levels since the GFC slowdown since 2010-11, and the various recessions since then

Due to increased consumer confidence in more positive economic conditions, resulting in increased global trade volumes

This is compounded by the structural changes in many economies, as the many populations are ageing, resulting in changes to the labour force and increased welfare programs

The IMF warns against possible drag factors, including:

a possibly sharp tightening of financial conditions, waning popular support for global economic integration, growing trade tensions and risks of a shift toward protectionist policies, and geopolitical strains

These factors has sadly been realised presently, from the trade war occurring between the US and China, the increase in protectionist policies. This will diverge from the 3.9% growth prospects projected by the IMF as the lower level of global trade.

[a-can-of-potatoes]

On 15th June 2018

A trade war occurs when one country imposes tariffs on imports, causing the other to respond, and escalates, moving the countries away from free trade.

In theory, by taxing another country’s imports, it will give local firms a competitive advantage as local goods will be cheaper for consumers.

This will reduce imports leakages, boosting the economy of the original country

Trump has imposed a 25% tariff on $USD 50 bil worth of Chinese exports, ranging from white goods to mechanical equipment.  China has responded with its own tariffs on $35 bil worth of US goods

Trump has imposed the tarriffs due to perceptions of the unfair trade balance between the two nations, with the US-China’s trade deficit at $375 bil in 2017. He also accuses China of Intellectual Property (IP) theft, where less stringent IP laws allows more loophole for Chinese firms to copy US designs and ideas.

China does in fact engage in protectionist policies that can be considered IP theft

By imposing government censorship on international digital companies, such as Google and Facebook, it eliminates these foreign competition from the Chinese market, which have caused platforms such as Weibo to grow

While this is not a traditional protection policy, it has nerveless eliminated foreign competition and is a deterrent to free trade.

However, this trade deficit number does not include the US’s net services exports, which totalled $242.7 bil in 2017.

Like most advanced economies in present day, the US is undergoing structural change, shifting it’s composition where 90% of the economy consists of services

Main area of the US’s services include: banking, financial services, tourism

One of the tariffs imposed is 25% on all steel imports, and 10% on aluminium. However, most of the US steel is sourced from its traditional allies, such as Canada and the EU

Steel and aluminium prices rise in the US because of reduced international supply

Greater demand for local steel will push up the price for steel and aluminium, lifting profits for steel makers. 

However this will have flow on effects to other manufacturing sectors of the economy, such as the automobile industry

This will result in the extra costs pushed onto consumers, which will cause cost inflation.

While in theory the additional revenue from higher prices should allow for increased labour demand in the US, the nature of the trade war has forced companies to reconsider their production choices

Harley-Davidson, an US motorcycle company, has relocated its production services out of the US into Europe and South America in order to avoid the tariffs on automobiles imposed by the EU

This has resulted in the closing down of US factories, leading to loss of jobs for workers inside those factories

Australia is against these protectionist policies as we are an advocate for free trade. These trade wars harm our self interests and can lead to damaging Australia’s export driven industry.

[a-can-of-potatoes]

On 4 July 2018

The current in instability of the Chinese financial markets, is an indication of the deepening slowdown in the Chinese economy, reflected by the plunging of the CNY by 5 per cent since mid-June, has resulted in a large outflow of foreign capital from China.

... currency crisis three years ago. That episode pushed capital flight to $US100 billion ($136 billion) a month. The PBOC burned through $US1 trillion of foreign reserves... It became the catalyst for a worldwide equity slump and came close to pushing the global economy into recession, a warning that events in China are no longer a local affair.

In light of the proposed trade wars, it will worsen the slump of the global economy currently, as higher tariffs deter exporters, resulting in changes to a free-floating exchange rate due to changes in currency demand.

This will decrease the exchange rate for a country, which can have flow-on effects to other sectors, such as investment and interest repayments

Leverage stock purchases consists now to five trillion CNY, similar to the levels of 3 years ago

In light of the trade war, if China is to use currency as a weapon against the US, it will see an increase in the outflow of capital from China

This can be seen as both establishing and investors will wish to avoid extreme levels of risk as the restructuring of the Chinese economy will change to become more focused based through lower exchange rates, thereby reducing profit margins from manufacturing. 

The greater danger is that the Fed continues to ratchet up interest rates and pushes the dollar higher. "The stronger the dollar, the more difficult for China. It tightens global financial conditions," said Geoffrey Yu from UBS

The Fed has been tightening monetary policy up until Jan 2016

By increasing the US cash rate, this attracts more foreign investors into the US, creating demand for the USD, ans thus increasing the price of the USD

This causes an appreciation of the USD, which increases demand for imports on the US, resulting in greater trade volumes for China. 

[a-can-of-potatoes]

On 25th May 2018

Watch me rant about the tax cuts ohohohoho

The proposed tax cuts will deliver ‘middle income’ earners $44 mil AUD in the later stages of the plan, and $144 billion over a decade in tax reliefs.

This is expected to boost aggregate demand as ‘low to middle’ income earners has a higher MPC, bringing more economic activity in this period of slow growth as they spend it on necessities.

However, as the tax plan extends to the full range of tax brackets, and the extension of tax brackets, this scales the recipients of the tax reliefs to the high income earners.

Analysis from the Australian National University, the Grattan Institute and the Australia Institute has shown that households on higher incomes get a bigger proportion of the tax cuts over time

This will in effect increase disposable income inequality

By increasing inequality, this will reduce Australia’s’ PPP in the future, as the reduction in government tax revenue will reduce the ability to fund other social services, such as healthcare and education

It’s true that reducing the burden of personal income taxes is a desirable goal, particularly at a time when households are feeling the pinch of slower wages growth.

But Australian politicians have simply not done the hard work to reform our tax base to ensure finances are in a sustainable position before Australians can be relieved of the burden of bracket creep.

- Jessica Irvine

The foretasted budget revenues to fund propsed services such as the NDIS is reliant on positive global economic conditions, however with the increased tensions between the US and China currently it will most likely stump growth.

The trade wars will slow international trade, which will reduce revenue forecasts. If income tax is to be reduced further in the current state, this will not be enough to provide an economic buffer if a global downturn does arise due to the trade war, and the low income earners may receive the brunt of the burden as the government will not be able to continue to fund social services and growth.

[a-can-of-potatoes]

On 29th May 2018

https://www.smh.com.au/business/the-economy/time-to-stop-multinationals-eroding-our-tax-base-seek-founder-20180521-p4zgmb.html

Above is a very similar article, which engages the same issue

Through the process of globalisation, it has allowed TNCs to more easily operate in Australia, being especially true for tech and net companies due to the lack of a physical location of these services.

Many websites gain profits from showing advertisements, where the profits are then diverted offshore. As with many multinationals, by diverting profits offshore, they do not pay the Australian company tax, creating leakages from both the Current Account and Taxation

However, as tech companies do not occupy a physical presence, and are active globally, it it difficult to determine under which country’s laws will profits need to be taxed under, and can also lead to difficulties as countries will dispute who collects the tax, and the possibility of the same profits being taxed multiple times.

This therefore becomes increasing important for international organisations such as the OECD, G20 and the WTO to implement global taxation guidelines for these companies, as the tech sector will continue to grow as the world becomes increasingly digitaliised. 

Currently, many countries cannot reach a consensus on how tax rates should be applied, in both OECD and G20 discussions

One proposal is a 3% tax on all advertising revenue from "globally significant enterprises" with annual turnovers of more than $1 billion.

This demonstrates one of the loopholes left through the process of globalisation, as policies are not created fast enough to keep up with structural changes in the global economy, where the size of its influence is also difficult to measure. It is therefore important to establish this taxation infrastructure as this sector expands in the near future.

[a-can-of-potatoes]

On 5th May, 2018

The announced income and company tax cuts in the 18-19 budget is aimed at stimulating the economy by reducing the ‘T’ component of leakages, so that it can be re-invested into the economy. 

Given the low wage growth presently, the savings from tax reductions will most likely be consumed by middle-low income owners as they have a higher MPC, increasing the household consumption aspect of aggregate demand. 

The tax cuts should also theoretically encourage extra entrepreneurship, as less of personal income is taxed, resulting in larger gains. 

Despite very big differences in levels of taxation as a percentage of the economy, rates of productivity improvement are similar – suggesting worldwide advances in technology are far more influential that tax levels.

As stated, it is expected that the tax cuts will not increase productivity as the main sources of productivity growth has resulted from technological investments and improvements. 

Even though it can result in structural unemployment, government funded educational programs can help reskill laid-off workers.

While this can also result in increasing the budget deficit, it actively increases the productivity frontier as a higher skilled workforce is reflective of higher human capital

Ross Gittens also suggests that those most effected by changes in the tax rate are secondary earners, as primary earners have no choice but to continue in their work.

Thereby reducing the tax rate should provide incentives for secondary earners, (i.e. carers) to work

This could potentially increase the unemployment rate as the size of the labour force is increased, in adverse of the goals of fiscal policy

[a-can-of-potatoes]

On 25th June 2018

Currently, women consist of 27.7% of board directions of the ASX 200, which are the 200 largest companies on the Australian Stock Exchange. The goal of the 30% club is to have 30% of all ASX 200 board members be female by the end of 2018.

The 30% Club was launched by Ms Patricia Cross in May 2015 to campaign for 30 per cent women on ASX 200 boards by the end 2018.

This has been successful, seen as the number of female board members in 2015 was 19.4%, with the ASX 100 already reaching the 30% goal presently.

This allows a smaller gender pay gap, as senior members receive a considerably higher wage, especially with bonuses, as compared to lower management-level employees

“The next target for these companies should be 40 per cent by 2022″ -  Nicola Wakefield Evans, new Chairman of 30% club

The eventual target is to have an equal share of female and male directors, to more accurately portray the makeup of the population

As more women join the workforce, this increases Australia’s productive capacity, which generated more human resources, creating growth potential

https://www.smh.com.au/business/the-economy/why-we-need-to-get-highincome-women-back-to-work-the-case-for-tax-deductible-childcare-20171020-gz4ywg.html

This article brings up some interesting points about the barricades to women attaining senior positions

As women are usually the primary carer of a family, it is hard for them to re-enter the workforce after taking maternity leave as there may be a mismatch of skills or the inability to work longer hours

A recent Grattan Institute report noted that if Australian women did as much paid work as women in Canada, where there's subsidised childcare – implying an extra 6 per cent of women in the workforce – Australia's GDP would be about $25 billion higher. 

Furthermore, when women re-enter the workforce, they will not be eligible for social welfare benefits relating to childcare. Given the high cost of childcare in Australia currently, this reduces their disposable income, or forces women to work part-time 

This both increases the underemployment rate and diminishes the productive capacity of the economy

By providing adequate childcare services, or at least tax-deducible childcare, it would provide more opportunities for women to contribute to the economy

[a-can-of-potatoes]

On 26th June 2018 

Trumponomics' tarriffs has started to take effect, as the US has now started to impose tarrifs on key European and Chinese exports

In response, both areas has committed to continue to support free trade as the US adopts protectionist policies.

Europe has imposed tariffs on $US3.3 billion ($4.5 billion) worth of American products on Friday in response to US barriers on imports of aluminium and steel.

This could potentially harm Australian exports given the composition our our export base

However as the US only constitutes 5% of net exports, this is will not directly effect Australian exports, but rather the sustainability of China to purchase out exports

"The US is due to impose tariffs on $US34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $US200 billion of Chinese goods."

Trump has introduced these tariffs as he has felt that America takes up an unfair burden of trade. The US currently imported more than it exports against these other major economies

The introduction of tariffs are a way for Trump to establish a form of protection for the United States

This is predominantly to protect US workers from competitive advantages from the global stage, especially in manufacturing sector

The global response to the tarifs has been reflected in the lowest level of world trade since 2015, according to the Dutch Bureau for Economic Policy Analysis, in stark contrast to the 7 year high reached at the beginning of 2018.

The slowdown is a reflection of the loss of confidence as a clash between the 2 largest economies has the most influence on global trade

As most globalised economies will trade with either of these nations, they could lose international competitiveness

This can significantly impact developing/emerging economies as their main source of GDP growth will come from international trade

[a-can-of-potatoes]

On 7th June 2018

Following the 1% quarterly growth in the first quarter, the trade surplus decreased by 44% from $1.7 billion in March to $977 million in April.

This is reflected in a declining Terms of Trade, with the value of exports falling by 2%

The big drag on exports were coal, down $400 million or 7 per cent, and iron ore and minerals, down $300 million or 4 per cent.

This is expected to have a significant impact on net exports as Australia's primary exports consists of the above categories

However, natural gas exports continue to rise. with price increasing by 1% and export volume increasing by 2%.

Cyclical factors which has supported growth in the first quarter is not expected to continue to be sustained, as Paul Dales from Capital Economics said,

"The evidence suggests that growth may have already peaked ... it looks as though net exports are on track to make a neutral contribution to real GDP growth in the second quarter after having added 0.3 percentage points in the first quarter"

The slowdown in cyclical factors can be attributed to the increasing uncertainty in the global market with the loom of the trade war

With the increased tarriffs, this will reduce globalisation effects and the amount of global trade which occurs

However, even as the ToT declines, export volumes are seen to be on the rise. Along with Australia's narrowing CAD, this has resulted in a stronger AUD

This driven by stronger demand for exports, which increases demand for AUD on the FOREX

The demand has managed to sustain the AUD above US 0.75, and this is predicted to remain for the remainder of 2018

As imports remained stable, this is due to capital goods imports ofsetting a decline in consumer goods imports.

The increase in capital goods supports the view business investment is picking up, but the fall in consumption indicated that household spending is still weak

This is can be seen as a reflection of the effects of government policy, as policies which aim decrease tax/ increase subsidies/ consistent low cash rate all aim to encourage businesses to increase investment

However given the lower household consumption, this results in less demand pull inflation. 

Given that inflation is just within the target band, this may curb inflation levels as household fuelled inflation accounts for aprox 50% of headline inflation.

The other big import item on the move was a 4 per cent rise in fuel, coming on top a 16 per cent rise in March. this imported inflation 

[a-can-of-potatoes]

On 1st June 2018

The latest minimum wage decision has inceased the base wage to $719.20 per week. It is estimated that over 2 million Australians are covered by the award, and will therefore receive the addistional $24.30 a week.

The new hourly minimum rate of $18.93 will take effect from July 1, affecting workers on a 38 hour week.

The Australian Council of Trade Union argued for an increase of $50/week, however this was rejected as the commision ruled that this risked increasing unemployment, especially for low skilled and younger workers.

Due to the currently high level of unemployment, the existing slack in the labour market does not increase labour demand

This does not increase competition for labour, and thus no incentive for wage increases

Iain Ross, commission president, said the real value of the national minimum wage had increased by 5.8 per cent over the past decade and by 4.3 per cent in the past five years

"However, this has not resulted in improvement to the actual or relative living standards for many categories of national minimum wage and award-reliant households due to changes in the tax and transfer system"

The latest minimum wage decision increased the wage price index by 0.5 points, as wage growth is at 2 of WPI. This is extremely low in comparison to historical averages of around 3,5 %.

As households on the minimum wage has a higher marginal propensity to consume, by providing them with increased disposable income it will help facilitate greater economic growth from household spending

In a similar trend to the previous years, wage growth grew in the same proportion as CPI, resulting in little to no real wage growth

However, the income tax cuts in the 18-19 budge should be able to provide more disposable income for those on a mimmum wage, as the government seeks to accelerate GDP growth

Once growth does increase, this can push up demand for workers, which should allow both inflation and wages to rise, given that cyclical unemployment will be reduced